Back to top

Image: Bigstock

BNY Mellon (BK) Beats on Q3 Earnings as Revenues Improve

Read MoreHide Full Article

The Bank of New York Mellon Corp. (BK - Free Report) reported third-quarter 2016 adjusted earnings per share of 90 cents, which handily outpaced the Zacks Consensus Estimate of 81 cents. Also, the bottom line compared favorably with the prior-year quarter tally of 74 cents.

Better-than-expected results were driven by a rise in revenues, lower expenses and benefit from provisions. Also, assets under management (AUM) reflected strength during the quarter, while credit quality was impressive. However, lower financing-related fees were on the downside.

After considering M&I, litigation and restructuring charges, net income applicable to common shareholders came in at $974 million, up 19% from the prior-year quarter.


Revenues Improve, Costs Down

Total revenue (non-GAAP) increased 4% year over year to $3.93 billion. Also, the figure came in above the Zacks Consensus Estimate of $3.85 billion.

Net interest revenue, on a fully taxable equivalent basis was $786 million, up 2% year over year. The rise was driven by initiatives taken by the company to reduce the levels of lower yielding interest-earning assets and higher yielding interest-bearing deposits.  The impact of higher market interest rates also aided the rise.

Additionally, net interest margin grew 8 basis points to 1.06%.

Total fee and other revenues rose 3% from the prior-year quarter to $3.15 billion. All the components, except financing-related fees, increased in the reported quarter.

Total non-interest expenses (non-GAAP) amounted to $2.56 billion, down 1% year over year. This reflects lower expenses in nearly all categories, distribution and servicing expense and staff cost.

Strong Asset Position

As of Sep 30, 2016, AUM was $1.72 trillion, up 6% year over year. This reflected higher market values, partly offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).

Moreover, assets under custody and administration of $30.5 trillion were up 7% year over year. Net new business and higher market values were partially offset by unfavorable impact of a stronger U.S. dollar.

Improving Asset Quality

Non-performing assets declined 11% year over year to $109 million. Further, provision for credit losses was a benefit of $19 million, compared with a provision of $1 million in the year-ago quarter.

Also, allowance for loan losses fell 18% to $148 million.

Capital Ratios Improve

As of Sep 30, 2016, common equity tier-1 capital ratio (Standardized Basel 3 fully phased-in) came in at 11.3% compared with 10.2% as of Dec 31, 2015. Tangible common equity ratio stood at 6.5%, in line with the Dec 31, 2015 level.

Share Repurchase

During the reported quarter, BNY Mellon bought back 11.6 million shares for $464 million.

Our Viewpoint

BNY Mellon’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom line. Also, the company’s expanding client base and improved business platform are expected to provide economies of scale. However, the effect of stringent regulations and margin pressure remain matters of concern. Also, costs are anticipated to rise in the near term, led by increased litigation and restructuring expenses.

 

BANK OF NY MELL Price, Consensus and EPS Surprise

 

BANK OF NY MELL Price, Consensus and EPS Surprise | BANK OF NY MELL Quote

Currently, BNY Mellon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Major Regional Banks

Northern Trust Corporation’s (NTRS - Free Report) third-quarter 2016 earnings per share were in line with the Zacks Consensus Estimate. Results benefited from improved revenues. However, escalating operating expenses were the undermining factors.

SunTrust Banks, Inc. (STI - Free Report) is slated to announce results on Oct 21, while State Street Corp. (STT - Free Report) will report on Oct 26.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

Published in